Working Capital Management


DEFINITION of 'Working Capital Management'

A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.


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BREAKING DOWN 'Working Capital Management'

Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital.

A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.

  1. Current Assets

    A balance sheet account that represents the value of all assets ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out ...
  3. Working Capital

    Working capital is a measure of both a company's efficiency and ...
  4. Ratio Analysis

    Ratio analysis is quantitative analysis of information contained ...
  5. Risk Analysis

    The study of the underlying uncertainty of a given course of ...
  6. Working Capital Turnover

    A measurement comparing the depletion of working capital to the ...
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  1. Why is working capital management important to a company?

    Proper management of working capital is essential to a company’s fundamental financial health and operational success as ... Read Full Answer >>
  2. What are the components associated with working capital management?

    There are three main components associated with working capital management: accounts receivable, accounts payable and inventory. The ... Read Full Answer >>
  3. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  4. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  5. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  6. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>

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